Question

econ

LRAS, SRAS, SRAS SRAS Pnce Level Real GDP per Year 12) Refer to the graph above. At point E3, the economy is experiencing A) recessionary gap B) stagflation C) inflationary gap D) full economy 13) From the point in question 12, what needs to be done using Aggregate Supply to get back to full employment? A) Decrease government spending B) Fed. to sell government bonds C) Produce more petroleum D) Decrease laborers 14) From the point in question 12, what needs to be done using Aggregate Demand to get back to full employment? A) Increase government spending B) Fed. to sell government bonds C) Produce less petroleum D) Decrease laborers 15) From the point in question 12, what needs to be done using Aggregate Demand to get back to full employment? A) Increase income taxes B) Fed. to purchase government bonds C) Provide retraining programs D) Increase the minimum wage

Answer 1

Answer to first 4 questions are provided :

1) B) Stagflation ( It is caused by a decrease in AS. Decrease in AS lowers output , increases both inflation and unemployment )

2) C) Produce more petroleum ( Petroleum is an important input in many industries , producing more of it increases supply of many other goods )

3) A) Increases government spending ( increasing government spending increases AD in the economy )

4) B) Fed to purchase government bonds ( this increases money supply in the market and thus increases AD )